Ways financial institutions attempt to reduce adverse selection and
Moral hazard problems include which of the following:

Question

Quizplus · Accepted Answer

Financial institutions attempt to reduce adverse selection and moral hazard problems by providing information analysis, monitoring services, and designing contracts to reduce these problems (option B) and having a large deductible for an insurance policy or a significant down payment for a loan whereby customers have a stake in respectively reducing risk and incentives not to walk away from a loan (option C). Charging higher premiums to all customers (option A) is not an effective solution as it penalizes good risks along with bad risks. Hence, both options B and C are the best choices to reduce adverse selection and moral hazard problems.

Ways Financial Institutions Attempt to Reduce Adverse Selection and